TCS Q2 revenue grows at the slowest rate in over a decade as clients curb spending

TCS, India’s largest IT company, said its revenue grew just 1% sequentially in the second-quarter, the slowest rate of growth over a decade, as customers held back spendingJochelle Mendonca | ET Bureau | Updated: October 13, 2016, 19:42 IST

Tata Consultancy Services, India’s largest IT company, said its revenue grew just 1% sequentially in the second-quarter, the slowest rate of growth over a decade, as customers held back spending.

FY17 is likely to go down as one of the worst years for the Indian IT industry. TCS had already warned that growth momentum had slowed during the quarter, joining rival Infosys and mid-cap player Mindtree.

The company’s margin rose 95 basis points sequentially to 26%, returning the company to its targeted band of 26-28%. In the first quarter, TCS had slipped below its targeted band as wage hikes and slower growth hurt.

““It has been an unusual Q2 for TCS. Growing uncertainties in the environment is creating caution among customers and resulted in holdbacks in discretionary spending in the quarter,” TCS CEO N Chandrasekaran said in a statement. He added that volatility in India and Latin America also muted revenue growth.

TCS’ results will be used as a gauge of how the rest of the Indian IT sector will perform. Analysts have said that the Top 5 Indian IT companies will report the worst second quarter in a decade as they grapple with pricing pressure and the outcome of Britain voting to leave the European Union.

Of particular concern, is the outlook around spending in the banking and financial services, a major engine of growth for the sector. Companies from Cognizant to TCS to Infosys have cautioned that some of their BFSI customers are putting off spending.

TCS said its digital revenue grew to 16.1% in Q2, up from 15.9% in the first quarter.

TCS’ attrition rate fell to 12.9% from 13.6% in the first quarter of the year. The company ended the quarter with a headcount of 371,519.